nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2014‒11‒17
seventeen papers chosen by
Erik Thomson
University of Manitoba

  1. Introduction: Telling the Story of MIT Economics in the Postwar Period By E. Roy Weintraub
  2. Second thoughts: Theory and experiment in social dilemmas By Tatsuyoshi Saijo; Yoshitaka Okano
  3. Fundamental Equation of Economics By Wayne, James J.
  4. Trust in generosity: An experiment of the repeated Yes-No game By Werner Güth; Hironori Otsubo
  5. Does wealth entirely depend on inclusive institutions and pluralist politics? A review of Daron Acemoglu and James A. Robinson, Why nations fail By Peer Vries
  6. The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment By Kakarot-Handtke, Egmont
  7. Coevolution of Deception and Preferences: Darwin and Nash Meet Machiavelli By Heller, Yuval; Mohlin, Erik
  8. Three Images of Trade: On the Place of Trade in a Theory of Global Justice By Risse, Mathias; Wollner, Gabriel
  9. Economía política de la modernidad By Estrada, Fernando
  10. Do people care for a sustainable future? Evidence from happiness data. By Bartolini, Stefano; Sarracino, Francesco; Theis, Laurent
  11. As Críticas de Amartya Sen à Teoria da Escolha Social de Kenneth Arrow By Bruno Beltrame; Laura Valladão de Mattos
  12. A Simple Bargaining Model where Parties Make Errors By Van Essen, Matthew
  13. La cuestión metodológica en Albert Hirschman By Germán Darío Valencia Agudelo
  14. The Return of the Original Phillips curve? An Assessment of Lars E. O. Svensson's Critique of the Riksbank's Inflation Targeting, 1997-2012 By Andersson, Fredrik N. G.; Jonung, Lars
  15. Financial crisis in The Arcades Project of Walter Benjamin By Estrada, Fernando
  16. Intergenerational games with dynamic externalities and climate change experiments By Katerina Sherstyuk; Nori Tarui; Majah-Leah V. Ravago
  17. Bargaining Power and Value Sharing in Distribution Networks: A Cooperative Game Theory Approach By Roberto Roson; Franz Hubert

  1. By: E. Roy Weintraub
    Abstract: Over the past twenty-five years the Duke history of economics faculty, together with the collection development librarians in the David M. Rubenstein Rare Book and Manuscript Library, have been gathering the papers of notable (mostly) twentieth century economists in what is now called The Economists Papers Project (EPP). Over time that archive has grown and become central to historical research on economics in the postwar period. The papers of Edwin Burmeister, Evsey Domar, Franklin Fisher, Duncan Foley, Lawrence Klein, Franco Modigliani, and Robert Solow, all MIT faculty or students, have attracted scholars from around the world. After Paul Samuelson’s death in December 2009, his papers, by prior arrangement, came to the EPP and quickly became a magnet for historians of economics. In response, early in 2010 I was encouraged by my colleagues Kevin Hoover, Bruce Caldwell, Craufurd Goodwin, and Neil De Marchi to plan a conference in the History of Political Economy Annual Conference series to examine the history of MIT economics. After a year’s worth of conversations and emails, I invited a number of individuals to consider a variety of projects exploring MIT’s role in the transformation of American economics in the postwar period. That conference, held in April 2013 at the R. David Thomas Conference Center at Duke University, was sponsored as usual by the Duke University Press. However the very generous financial support of the Alfred P. Sloan Foundation made possible the expansion of the “standard” HOPE Conference into one that included a larger number of participants and papers. In the end the conferees learned that telling the story of MIT’s role in the postwar period required attending to both the particular circumstances that shaped MIT and the various ways in which economics itself was changing.
    Keywords: MIT, Paul Samuelson, E. B. Wilson, Robert Solow, Graduate Education, historiography of economics
    JEL: A1 A2 B2 B3 D00 E00
    Date: 2014
  2. By: Tatsuyoshi Saijo (Kochi University of Technology); Yoshitaka Okano (Kochi University of Technology)
    Abstract: This paper shows that second thoughts are not an innocent device in our daily life, but is human wisdom that plays an important role in resolving problems such as social dilemmas. We design the simplest possible mechanism to achieve Pareto efficiency in social dilemmas, and then compare the performance of this mechanism with and without second thoughts. First, second thoughts change the payoff structure of the game in favor of cooperation. Second, the mechanism with second thoughts performs very well experimentally, even from the first period. Third, this mechanism is robust even when players deviate from rational choices.
    Keywords: Second thoughts, Social Dilemma, Cooperation
    JEL: C72 C92 D74
    Date: 2014–10
  3. By: Wayne, James J.
    Abstract: Recent experience of the great recession of 2008 has renewed one of the oldest debates in economics: whether economics could ever become a scientific discipline like physics. This paper proves that economics is truly a branch of physics by establishing for the first time a fundamental equation of economics (FEOE), which is similar to many fundamental equations governing other subfields of physics, for example, Maxwell’s Equations for electromagnetism. From recently established physics laws of social science (PLSS), this paper derives a fundamental equation of economics, which is the one mathematic equation that governs all observed economic phenomena. FEOE establishes a common entry point to solve all economic problems without any exception. We show that establishing FEOE clarifies many open questions regarding the foundation of economics. For example, the number one question for all economists ought to be what can be forecasted and what cannot be forecasted in economics. Without FEOE and PLSS, this number one question cannot be answered scientifically within the existing framework of economics. While FEOE re-affirms many existing economic theories, we also have found that many other popular economic theories are not compatible with FEOE, and we conclude that FEOE comes with its own version of microeconomics and macroeconomics. In microeconomics, the framework of laws of supply and demand and market equilibrium, which is traditionally assumed by most economists as the foundation of economics, is replaced by a new model called indeterministic supply demand pricing (ISDP) model. ISDP model is far more precise and universal mathematical abstraction of market reality than the framework of Marshall’s market equilibrium and laws of supply and demand. In macroeconomics, a new macroeconomic model called indeterministic balance sheet plus (IBS+) model can be derived from FEOE. Unlike the popular DSGE and Agent-based Computational Economic (ACE) models, the IBS+ model is universally applicable in any kind of economy, empirically falsifiable, making forecasts with reasonable accuracy, truthful abstraction of reality, capturing macroeconomic dynamics accurately, and most importantly based on a sound theoretical foundation. In conclusion, this paper shows that FEOE provides a solid physics foundation for both theoretical and practical economics. Therefore, after establishing the fundamental equation of economics in this paper, there should be no doubt that economics is simply a branch of quantum physics in parallel with chemistry and optics. Over last four hundred years, there are many schools of thoughts emerged in economics while there is only one school of thought by Newton-Einstein-Bohr survived the experimental and theoretical scrutiny in physics over the same period. The logic conclusion is that there must be only one school of thought allowed in economics as a subfield of physics.
    Keywords: causality, econophysics, economic forecast, laws of supply and demand, market equilibrium, macroeconomic model, laws of physics, physics laws of social science, fundamental equation of economics
    JEL: A12 C1
    Date: 2013–10–10
  4. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); Hironori Otsubo (Soka University)
    Abstract: This paper reports results of a 100-round Yes-No game experiment conducted under the random matching protocol. In contrast to ultimatum bargaining, the responder in the Yes-No game decides whether to accept without knowing the proposer's offer. Although both games have the same solution outcome (i.e., the proposer offers the smallest possible amount and the responder accepts), the set of equilibria of the ultimatum bargaining game is rather large whereas the equilibrium of the Yes-No game is essentially unique. Avrahami et al. (2013) found an immediate convergence to proposers offering an equal split in their repeated ultimatum bargaining experiment. Our main interest is which dynamics emerge when proposers and responders repeatedly play the Yes-No game. We found neither convergence to offering an equal split nor to the solution outcome. Most participants display a surprising constancy of behavior but the categories of behavior are rather rich.
    Keywords: Yes-No game, Repetition, Learning, Veto power, Laboratory experiment
    JEL: C72 C92
    Date: 2014–10–27
  5. By: Peer Vries
    Abstract: Resumen: The authors of the book reviewed here need no introducing. They are amongst the most-frequently cited scholars in the social sciences. They wrote many highly influential articles, as a rule together with Simon Johnson, and already published a book together in 2006. Their book needs no further praise; it opens with jacket quotes of praise by no fewer than five Nobel-prize winners in economics, and by amongst others Jared Dia- mond, Niall Ferguson, Francis Fukuyama, Joel Mokyr, Dani Rodrik and Ian Morris. It would not make much sense to add my humble eulogy to such distinguished recommendation. I will therefore mainly confine myself to critical comments. Not because one can only criticize the book, although I am less impressed than the ‘reviewers’ I just referred to, but because amidst all that praise some critical counterpoise from an economic histo- rian can do no harm.
    Date: 2013–12–16
  6. By: Kakarot-Handtke, Egmont
    Abstract: Axiomatization is the prime task of theoretical economics. Without correct axioms,no correct theory. Without correct theory, no understanding of how the economy works. Without empirically corroborated understanding, no useful economic policy advice. Yet, much more important than any political reputation of economics is indeed: without correct axioms, no acceptance as science. There is no way around it, neither for Orthodoxy nor for Heterodoxy. The conceptual consequence of this paper is to discard the subjective-behavioral axioms and to take objective-structural axioms as the formal point of departure. This enables the rectification of the most fatal analytical mistakes of conventional economics.
    Keywords: new framework of concepts; structure-centric; axiom set
    JEL: B49 B59 E10
    Date: 2014–09–02
  7. By: Heller, Yuval; Mohlin, Erik
    Abstract: We develop a framework in which individuals preferences co-evolve with their abilities to deceive others regarding their preferences and intentions. We show that a pure outcome is stable, essentially if and only if it is an efficient Nash equilibrium. All individuals have the same deception ability in such a stable state. In contrast, there are non-pure outcomes in which non-Nash outcomes are played, and different deception abilities co-exist. We extend our model to study preferences that depend also on the opponent's type.
    Keywords: Evolution of Preferences; Indirect Evolutionary Approach, Theory of Mind; Depth of Reasoning; Deception.
    JEL: C72 C73
    Date: 2014–08–30
  8. By: Risse, Mathias (Harvard University); Wollner, Gabriel (London School of Economics and Political Science)
    Abstract: Economic theory teaches us that it is in every country's own best interest to engage in trade. Trade therefore is a voluntary activity among consenting parties. On this view, considerations of justice have little bearing on trade, and political philosophers concerned with matters of global justice should stay largely silent on trade. According to a very different view that has recently gained some prominence, international trade can only occur before the background of an existing international market reliance practice that is shaped by states. On this view, trade is a shared activity among states, and all participating states have in principle equal claims to the gains from trade. Trade then becomes a central topic for political philosophers concerned with global justice. The authors find fault with both of those views and argue instead for a third view about the role of a trade in a theory of global justice. That view gives pride of place to a (non-Marxian) notion of exploitation, which is developed here in some detail.
    Date: 2014–02
  9. By: Estrada, Fernando
    Abstract: This article consists of three parts. The first response to the idea of ​​keeping TOCQUEVILLE own arguments in Old Regime and the Revolution, without reproducing copiously text line by line. This component is the main concerns and conflicting judgments about the revolution, the decisive role that the author gives to religion and how Europe was in ruins. Tocqueville is particularly interested in showing the exacting nature of feudal rights especially in France. Administrative centralization is an institution par excellence of the Old Regime and the same process. In the second part devoted several sessions to understand the reasons TOCQUEVILLE claims to show the history of property rights and land tenure. In the third session we show the influence of the Revolution and encyclopedic deviations could have brought the author. The reformist spirit of the French during the period from the fourteenth to the nineteenth centuries. Tocqueville scholars encounter numerous observations annotations that can supplement your readings.
    Keywords: Political economics, History of Economics. Tocqueville, Modernity
    JEL: B10 B11 B15 B31 Z11 Z13
    Date: 2014
  10. By: Bartolini, Stefano; Sarracino, Francesco; Theis, Laurent
    Abstract: While the various streams of environmentalism agree in claiming that the current patterns of economic activity are unsustainable for natural resources, they disagree in answering the following question: who is the responsible? Two different answers have been provided: the people or the socio-economic system. The first answer claims that people are inter-temporally greedy. Unsustainable economic patterns simply reflect the little importance that current generations attribute to the living standard of future generations. According to the second answer instead, people would prefer a more sustainable path of the economy but some failure of the socio-economic system prevent this outcome. We provide a test of the basic hypothesis on which these two views diverge: the degree of people’s concern for the conditions of life of future generations. We derive this information by estimating the relationship between people’s current subjective well-being and their expectations about the living standard of future generations, i.e. a future far enough to concern only future generations. According to the first view, people’s expectations about the future should have weak or null influence on people’s current well-being. On the contrary, the second view implies that such influence should be positive and remarkable. We use various international and national survey data to estimate a standard happiness regression augmented with people’s expectation about the future. Results suggest that current well-being is sharply and negatively associated to a negative expectation of the future. Where possible, we use 2SLS to account for possible endogeneity between the expectations about the future and current well-being. We find that expecting the worst (the best) for future generations has a very large negative (positive) impact on subjective well-being. This conclusion supports the view that current problems of sustainability are due to some failure of the socio-economic organization and not to the inter-temporal greed of human beings.
    Keywords: Sustainability, well-being, life satisfaction, Endogenous Growth, economic growth, discount rate, happiness, intergenerational equity, time preference.
    JEL: D62 D64 D91 I31
    Date: 2014–05–22
  11. By: Bruno Beltrame; Laura Valladão de Mattos
    Abstract: Este artigo visa a sistematizar as críticas que Amartya Sen dirige à estrutura teórica adotada por Arrow e a mostrar como, para fugir aos resultados devastadores do teorema da Impossibilidade, Sen defende a ampliação do universo de informações a serem utilizadas para embasar a escolha social. Inicialmente é apresentado um breve apanhado da teoria da Escolha Social de Arrow com o objetivo de fornecer o pano de fundo para a compreensão das críticas que Sen dirige a esse sistema teórico. Em seguida são expostas as interpretações de Sen sobre as razões que levaram ao resultado da impossibilidade e as críticas que este autor dirige aos fundamentos da teoria de Arrow. Por fim, são tecidas algumas considerações sobre a natureza desta reflexão crítica e suas consequências para a visão de Bem-Estar posteriormente adotada por Sen.
    Keywords: Amartya Sen; Escolha Social; Kenneth Arrow; Teorema da Impossibilidade; base informacional
    JEL: B41 B29
    Date: 2014–10–23
  12. By: Van Essen, Matthew
    Abstract: In this paper, we develop a bargaining model where parties (or their intermediaries) make errors when reporting their bid. We characterize the Nash equilibria of the game and show that there is a unique equilibrium where trade takes place. This trade equilibrium is shown to converge to the Nash Bargaining Solution of the problem as trembles diminish. Finally, we discuss our results in the context of the previous literature providing a critique of the model and analysis found in Carlsson (1991).
    Keywords: Nash Program, Nash Bargaining Solution, Equilibrium Selection, Nash Demand Game
    JEL: C7 C71 C72 C78
    Date: 2014–09–28
  13. By: Germán Darío Valencia Agudelo
    Abstract: Resumen: Albert Hirschman fue un economista poco convencional. Su metodología de investigación y exposición se distancia abismalmente de la utilizada por la corriente principal en la ciencia económica. El artículo hace una aproximación a la cuestión metodológica en Hirschman. Aunque no se encuentra un tratado escrito por el autor para discutir el tema, sus trabajos son claros ejemplos de como abordar metodológicamente los objetos sociales de estudio: esta se sintetiza en partir de la realidad para diagnosticar problemas y proponer soluciones, utilizando la teoría económica y buscando en otras disciplinas la forma de complementar los análisis y recomendaciones. Además su método de exposición se caracteriza por dirigirse a todo público de manera clara y simple.
    Keywords: Epistemología económica; Economía política; Metodología de la economía; Albert Hirschman.
    JEL: B41 B59 D82 D86
    Date: 2013–06–27
  14. By: Andersson, Fredrik N. G. (Department of Economics, Lund University); Jonung, Lars (Department of Economics, Lund University)
    Abstract: We examine Lars E O Svensson's prominent critique of the monetary policy of the Sveriges Riksbank (the Swedish central bank) from 1995-2012. Our main objection concerns Svensson's conclusion that the original pre-Friedman/Phelps version of the Phillips curve based on constant inflation expectations has returned for Sweden. Based on estimates of this model, Svensson claims that that the Riksbank's policy has contributed to an average of 38 000 more unemployed a year between 1997-2011. This result is based on Svensson's unrealistic as well as unnecessary assumption of constant inflation expectations anchored at the Riksbank's inflation target of 2 per cent. Data show, however, that the public's inflation expectations have varied between 0 and 4 per cent, thus they have not been anchored. The negative employment effect found by Svensson vanishes once actual data on inflation expectations are included in the estimates of the Phillips curve. The long run non-vertical Phillips curve is transformed into a vertical one, in line with the Friedman/Phelps theory. We have additional objections to Svensson's reasoning. First, we show that the Riksbank has on average met its inflation target between 1995 and 2012. Second, we suggest that the original Phillips curve is too simple a model to draw any firm policy conclusions about unemployment and monetary policy in a small open economy such as Sweden. Third, we do not want to overburden Swedish monetary policy by making the Riksbank responsible for three objectives. It has already two objectives: price stability and financial stability. Criticising the Riksbank for employment losses, as Svensson does, gives priority to a third objective, high employment. Finally, Svensson adopts a short-term perspective by focusing on the period 1995-2011. When we compare the Riksbank's inflation targeting regime with previous monetary policy regimes over the past 100 years, inflation targeting in the past fifteen years is clearly one of the most successful.
    Keywords: Sweden; inflation targeting; Phillips curve; inflation expectations; Swedish Riksbank; unemployment
    JEL: C51 D84 E24 E31 E42 E50 E58 N14
    Date: 2014–08–29
  15. By: Estrada, Fernando
    Abstract: The main objective of this paper is to present a reading of The Arcades Project by Walter Benjamin in the context of the financial crisis, in particular, reflect from a few fragments of Benjamin's work appear to lie around a Black Swan. The recovery of the fragments of The Arcades seems appropriate at a time when the financial crisis should be taught as a deeper crisis. Walter Benjamin is placed beyond its time, with a powerful sense of observation worthy of emulation analytical.
    Keywords: Financial theory, markets, Black swan, stock markets, financial crisis, markets risk, Walter Benjamin, Arcades Project.
    JEL: G0 G01 G02 G14 G17 G28 G32 G33
    Date: 2014
  16. By: Katerina Sherstyuk (University of Hawaii at Manoa); Nori Tarui (University of Hawaii at Manoa); Majah-Leah V. Ravago (University of the Philippines Diliman)
    Abstract: Dynamic externalities are at the core of many long-term environmental problems, from species preservation to climate change mitigation. We use laboratory experiments to compare welfare outcomes and underlying behavior in games with dynamic externalities under two distinct settings: traditionally studied games with infinitely-lived decision makers, and more realistic intergenerational games. We show that if decision makers change across generations, resolving dynamic externalities becomes more challenging for two distinct reasons. First, decision makers' actions may be short-sighted due to their limited incentives to care about the future generations' welfare. Second, even when the incentives are perfectly aligned across generations, increased strategic uncertainty of an intergenerational setting may lead to an increased inconsistency of own actions and beliefs about the others, making own actions more myopic. Intergenerational learning through history and advice from previous generations may improve dynamic efficiency, but may also lead to persistent myopic bias.
    Keywords: economic experiments, dynamic externalities, intergenerational games, climate change
    Date: 2014–11
  17. By: Roberto Roson; Franz Hubert
    Abstract: This paper illustrates a methodology for analyzing bargaining games on network markets, by means of numerical models that can be calibrated with real data. Economic incentives to join or to expand a network depend on how the network surplus is being distributed, which in turn depends on a variety of factors: position of each agent (e.g., a country) in a specific network, its reliability in the cooperation scheme (e.g., geo-political stability), existence of market distortions and availability of outside options (e.g., alternative energy sources). This study is aimed at presenting a game theory methodology that can be applied to real world cases, having the potential to shed light on several political economy issues. The methodology is presented and illustrated with application to a fictitious network structure. The method is based on a two-stage process: first, a network optimization model is used to generate payoff values under different coalitions and network structures; a second model is subsequently employed to identify cooperative game solutions. Any change in the network structure entails both a variation in the overall welfare level and in the distribution of surplus among agents, as it affects their relative bargaining power. Therefore, expected costs and benefits, at the aggregate as well as at the individual level, can be compared to assess the economic viability of any investment in network infrastructure. A number of model variants and extensions are also considered: changing demand, exogenous instability factors, market distortions, externalities and outside options.
    Keywords: Network Markets, Cooperative Games, Distribution Networks, Bargaining.
    JEL: C63 C71 L95
    Date: 2014

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